US Department of Labor sends ‘Strike Team’ to California over $21B jobless debt and fraud concerns

WASHINGTON, DC: The US Department of Labor has deployed a specialized “strike team” to California to probe alleged fraud and fiscal mismanagement in the state’s unemployment insurance (UI) system.

The move follows federal findings that California’s UI trust fund is depleted and carries approximately $21 billion in federal funds, a deficit that has pushed employer payroll taxes higher as repayment efforts continue. 

Officials say the debt has resulted in higher unemployment insurance taxes for employers as the state works to repay the balance. The announcement was made by Labor Secretary Lori Chavez-DeRemer, who said the move addresses persistent oversight and improper benefit payments.

Labor secretary cites audit findings and rising improper payments

In a statement, Chavez-DeRemer said, “Financial issues and potential fraud in California’s unemployment insurance program will be fully examined. The previous administration turned a blind eye toward failing Labor programs: This ends now.” She added, “Immediately, we are engaging a specialized strike team to uncover any potential fraud or abuse and quickly moving to protect the American worker and taxpayers. I look forward to restoring the California UI program’s integrity and financial health.”

According to the department, the strike team will include specialists from both national and regional offices. Chavez-DeRemer also sent a letter to California’s Employment Development Department (EDD), referencing increasing improper payment rates, concerns about timeliness and data accuracy, and questions about eligibility determinations and the use of taxpayer funds.

The department cited an 83-page report by the California State Auditor that found the state’s unemployment system to be high-risk.

The audit pointed to “inadequate fraud prevention and claimant service [in its employment development department (EDD)], as well as a high rate of overturned eligibility decisions in its Unemployment Insurance Program.” Federal officials say these findings, combined with the depleted trust fund and outstanding federal loans, have placed additional financial strain on employers who fund the system through payroll taxes.

California received approximately $290 billion in COVID-19 relief funding, part of which supported expanded unemployment benefits during the pandemic.

However, multiple fraud cases have surfaced, including a California UI employee convicted of filing nearly $860,000 in fraudulent claims, and civilians convicted of creating nonexistent businesses to obtain benefits. 

Inspector general warns of nationwide COVID-era fraud risk

The deployment of the strike team follows recent remarks by Anthony D’Esposito, the Department of Labor’s inspector general, who said nearly $1 billion in taxpayer funds nationwide remain at risk due to COVID-related unemployment fraud.

In a statement, D’Esposito said an analysis of 6.5 million prepaid debit cards used to distribute pandemic-era unemployment benefits showed that $720 million remains loaded on those cards.

“My office has warned that, absent swift action, US taxpayers risk losing nearly a billion dollars in fraudulently obtained benefits,” he said. “This is taxpayer money and it demands immediate attention.” D’Esposito added that fraud “is not a victimless crime” and emphasized the broader financial implications. “When we root out fraud, we protect taxpayers and lower the real cost of living,” he said.

Federal officials have not specified a timeline for the strike team’s review in California, but said the effort is aimed at addressing vulnerabilities in the system and improving oversight of unemployment insurance funds.